1099-R recharacterization code N -- Do I report this as a rollover for tax filing?

Thanks for the explanation! I'm in a similar situation but my 1099-R has code J instead of N. Does that change how I should answer? Also, does doing the backdoor Roth conversion right after the recharacterization cause any issues with the step transaction doctrine?

Code J is for early distributions from a Roth IRA, which is different from a recharacterization. For code J, you need to determine if you meet any exceptions to avoid penalties, but it's still treated as a distribution unless you rolled it over. So yes, it would change how you report it. As for the step transaction doctrine, the IRS has effectively blessed the backdoor Roth strategy despite theoretical concerns about step transactions. There's no specific waiting period required between recharacterization and conversion. However, some people wait a short period (a few days to a month) between steps just to create some separation between the transactions.

Does this taxr.ai thing work with all the major tax software? I'm using H&R Block online and have a similar recharacterization situation but also have some 1099-B forms with wash sales that are confusing me.

I'm skeptical about these tax tools - did it actually explain the difference between a recharacterization and a rollover? Because technically they're different transactions with different rules. And what about the pro-rata rule if you have existing pre-tax IRA balances?

Yes, it works regardless of which tax software you're using. It analyzes your tax documents and gives you specific guidance on how to enter the information in any tax program. It handles complex investment forms like 1099-B including wash sale adjustments - I had a few of those too! It absolutely explained the difference between recharacterizations and rollovers, including why code N transactions get reported as rollovers in tax software despite being technically different. And it addressed the pro-rata rule in detail - it actually flagged that as a potential issue and explained how to calculate it based on all existing IRA balances on December 31st. It even created a custom worksheet for my situation.

Wait, how does that even work? Doesn't the IRS need to verify your identity before discussing your account? I've been trying to reach them about my own recharacterization issue but keep getting disconnected.

This sounds like a scam tbh. No way some service can magically get through to the IRS when millions of people can't. And even if you did get through, most IRS reps don't understand the complexities of backdoor Roth transactions anyway. I'd stick with actual tax professionals.

The service doesn't access your personal information or speak to the IRS on your behalf. It just navigates the phone system and waits on hold for you. When an actual IRS agent picks up, you get a call connecting you directly. Then you verify your identity yourself just like a normal call. It's basically just handling the hold time part. You're right that not every IRS rep understands every tax situation. But I specifically asked for a tax law specialist when connected, and they transferred me to someone who definitely understood recharacterizations and backdoor Roths. Much more helpful than the first-level support people. It's not for everyone, but if you've been trying unsuccessfully to reach them, it's worth considering.

Thanks for bringing this up! My situation was slightly different - my Roth contribution actually lost about $300 in value before I realized I was over the income limit and needed to recharacterize. So I moved less than my original contribution to the Traditional IRA. Will that cause any issues? Should the loss be reflected somewhere on my tax forms?

No, that won't cause any issues. You're doing everything correctly by recharacterizing the reduced amount. The loss occurred while the money was in the Roth IRA, and when you recharacterize, it's as if you originally contributed that lower amount to the Traditional IRA instead. When you later converted that amount back to a Roth via the backdoor, you'd only convert the lower amount. The 1099-R with code N should show the actual amount that was recharacterized (the lower amount after the loss). This loss doesn't get reported separately on your tax return - it just means you're moving and potentially paying taxes on a smaller amount during the backdoor conversion portion.

I used TurboTax for exactly this situation. When you enter the 1099-R with code N, it will ask something like "Did you move this money to another retirement account?" rather than specifically using the word "rollover." Just answer "yes" to that question. TurboTax will then take you through additional screens to confirm it was a recharacterization. Make sure you also complete Form 8606 if you did the backdoor Roth conversion afterward. TurboTax has a separate section for entering that conversion transaction. It's a bit hidden in the Deductions & Credits section under "Retirement & Investments.